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Unit 10: Underwriting of Shares

Calculation of Net Amount Receivable from Underwriters Notes
Ali Bali Charlie Total
Total Liability in shares 5,000 9,000 9,000 23,000
Amount due @ 60 per share 3,00,000 5,40,000 5,40,000 13,80,000
Less: Commission @ 5% on the normal value of
Underwritten shares 2,50,000 2,50,000 2,50,000 7,50,000
Final amount receivable 50,000 2,90,000 2,90,000 6,30,000
Journal entries in the books of Sardar Ltd.

Date Particulars L.F.

Bank Account Dr. 84,00,000
To Equity Share Application Account 84,00,000
(Being receipt of application money on
1,40,000 shares @ 60 Per share)
Equity Share Application Account Dr. 84,00,000
To Equity Share Capital Account 84,00,000
(Being transfer of application money to share
capital account)
Equity Share Allotment Account Dr. 56,00,000
To Equity Share Capital Account 56,00,000
(Being allotment money due on 1,40,000
shares @ 40 per share)
Bank Account Dr. 56,00,000
To Equity Share Allotment Account 56,00,000
(Being receipt of allotment money on
1,40,000 shares @ 40 Per share)
Underwriters’ Account Dr. 10,00,000
To Equity Share Capital Account 10,00,000
(Being allotment of 10,000 shares to
underwriters as per commitment)
Underwriting Commission Account Dr. 7,50,000
To Underwriters’ Account 7,50,000
(Being underwriting commission due @ 5%
on the nominal value of 1,50,000 shares)
Bank Account Dr. 2,50,000
To Underwriters’ Account 2,50,000
(Being receipt of final amount due from
underwriters)

Illustration 10
Plentiful Ltd. comes out with a public issue of share capital on 1.1.2005 of 10, 00,000 equity shares
of 10 each at a premium of 5%, 2.50 is payable on application (on or before 31.1.2005) and
3.00 on allotment (31.3.2005) including premium.
The issue is underwritten by two underwriters – Seth and Shetty – equally the commission being
5% of the issue price. Each of the underwriters underwrites 20,000 shares firm.

Subscriptions total 9,60,000 shares, the distribution of forms being:
Seth 5,20,000, Shetty 3,60,000 and unmarked forms 80,000.

LOVELY PROFESSIONAL UNIVERSITY 237